Look at Issue 35, with interest

The Toledo Public Schools has a bond issue on the November ballot to allow the school system to borrow more money for the school building project.

Issue 35 asks voters to approve bonds for the purpose of: “… constructing, renovating, remodeling, adding to, furnishing, equipping and otherwise improving school district buildings and facilities and acquiring, improving and equipping real estate for such buildings and facilities in the principal amount of $37,000,000, to be repaid annually over a maximum period of twenty-eight years …”

According to the ballot language, this measure will cost you, the property owner, $.07 for every $100 of valuation on your property. In language more common to the voter, that’s $70 per year for a home valued at $100,000.

TPS can take up to 28 years to pay off the bonds — the principle and the interest — and they will begin collecting this additional tax in 2008, which means that property owners will make their first payment of the tax in 2009.

What is unknown at this point are details about the bonds themselves. Multiple jurisdictions across the country are facing difficulties in the bonds they are currently trying to market. Wake and Durham counties in North Carolina are just two examples.

Wake County decided to delay its plans to sell $454.5 million in bonds — $370 million of which was designated for school construction and renovations projects that their voters had approved in 2006.

Durham County’s attempt to borrow $30 million failed when no lenders bid on their bond offering. What really strikes home is that both these counties enjoy the highest AAA credit rating.

But that’s not the only problem. If TPS can sell its bonds, what will the interest rate be and how much extra will that cost us?

Suppose TPS gets an interest rate of 4.75 percent — not high and not low — for the full amount of the bonds and spread out the payments over the 28 years, as planned. Its yearly payment — that is, our yearly payment — would be $2,416,476. Total cost over the 28 years is $67,661,328.

Borrowing $37 million now will cost us nearly twice that amount over the life of the obligation.

Every quarter percent increase in the interest rate will cost about $70,000 per year, so if the best interest rate TPS could get was 5.75 percent, the yearly cost increases to $2,689,639 and our total cost would increase to $75,309,880 —

more than double the amount we are borrowing.

At 8.75 percent interest, the total cost breaks the $100 million mark.

No one knows what is going to happen with interest rates, and it is likely that TPS will be able to lock in the interest rate when it issues the bonds. However, if it continues its past practice of only issuing the amount of bonds needed at the time, it is possible that future interest rates will increase and one of two things will happen: either TPS will have to come back to the taxpayer for additional funds or it will cut back on the projects or scope of projects to match the available funds.

The interest rate calculated over time is a critical part of the decision about voting for or against the TPS bond issue. Unless you know these details, you may think that $37 million isn’t that much over 28 years to get more new schools and facilities. But when you do your due diligence and add in the interest, you get the total cost and are better prepared to make a decision.

Interest rates aren’t the only details you should pay attention to. You should consider what you’re currently paying to TPS. Properties in the TPS jurisdiction pay more than 60 percent of their total property taxes directly to the Toledo Public School system. Part of that 60 percent includes nearly 8 percent that goes toward retiring the existing bonds we’ve approved for TPS.

What does that mean in every day language? Well, the nearly 8 percent we pay for bond retirement is greater than any tax levy that’s been approved and is more than the amount we pay to the City of Toledo for its operations.

We pay more to just pay off the existing TPS bonds than we do to the City of Toledo.

So the question you have to ask yourself is not do you want to support another $37 million for TPS schools and facilities.

The real question to ask is: Do I want to pay roughly double that amount, given what I’m already paying — and what will I get in return?

This entry was posted
on Friday, October 10th, 2008 at 12:00 am and is filed under Eye On Toledo, Opinion.
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